Superannuation and Retirement

Thankfully, there were no restrictive announcements on changes to superannuation. The industry is still smarting from the 2016 Budget and is busily preparing to implement those changes in under two months’ time.  That said, there are two new measures which affect superannuation and couple well with reducing pressure on housing affordability.

First Home Super Saver Scheme

From 1 July 2017, individuals can make voluntary contributions into superannuation of up to $15,000 per year, up to $30,000 in total, for the purpose of saving for the purchase of a first home.

If concessional, the contributions will be taxed at 15% – the same as all other concessional superannuation contributions. The contributions, along with deemed earnings, can be withdrawn for use as a deposit. A withdrawal will be allowed after 1 July 2018. The withdrawal of concessional contributions and associated deemed earnings will be taxed at marginal tax rates less a 30% tax offset.  Non-concessional contributions withdrawn will not be taxed.

This measure has the opportunity to boost the savings of first home savers due to the concessional tax treatment of superannuation. The deemed earnings rate will be calculated using the 90-day Bank Bill rate plus 3 per cent. The scheme will be administered by the ATO, including the calculation of any earnings, and the release of funds must be approved by the ATO. A release request will be provided to the applicant’s super fund.

From 1 July 2017, individuals can claim a personal tax deduction for contributions made to superannuation above the 9.5% made by the employer, instead of relying on a salary sacrifice arrangement. The first home saver scheme measure combines nicely to enable an individual to be more in control of their superannuation contributions whilst also saving for a first home.

It is important to note that the contributions made must be within the contribution caps that apply from 1 July 2017, being $25,000 for concessional contributions and $100,000 for non-concessional contributions.  Non-concessional contributions can also be saved in the same manner however there is no tax concession – these contributions will only benefit from the concessional rate of tax on the earnings.

Reducing barriers to downsizing

The current superannuation regime limits contributions after age 65 to those who meet a work test.  Further, people over age 65 are not able to bring forward 3-years’ worth of non-concessional contributions, limiting these to $100,000 per year.

This new measure encourages older homeowners to downsize to free up housing stock to younger families. From 1 July 2018 people aged 65 and older will be able to make a non-concessional contribution of up to $300,000 to their superannuation after selling their home.  This is in addition to any other contributions they are eligible to make and regardless of the balance in superannuation.  The conditions are that the home must be a principal place of residence owned for more than 10 years. Both members of a couple will be able to take advantage, meaning $600,000 may be contributed under this new special downsizing cap.

Note that any change to superannuation balances may affect age pension assets test.

In conclusion, superannuation practitioners breathed a sigh of relief when hearing the Budget announcements tonight. It is anticipated that these two measures may fly under the radar as the conditions for using them are quite restrictive. Time will tell as to whether they are used by the broader population to relieve pressure on housing affordability and assist younger people to own their first home.